July ceasefire gave the region’s private sector its best month since spring

The region’s non-oil private sector appeared to be on a recovery trajectory in July, with Kuwait rebounding to growth, Saudi holding on to expansion, and even laggards like Egypt and Turkey contracting less sharply than they did in the Spring months. The snapshot is, however, incomplete, with PMI figures for others including Oman and Qatar still not out.

The common theme for July was the relative calm induced by the now-defunct US-Iran ceasefire. For a few weeks starting in late June, airspace and sea shipping lanes in the region appeared to be in recovery, oil prices were cooling, and business confidence was generally on the up amid ceasefire optimism.

Kuwait had the sharpest recovery in July. Its headline PMI figure rose to 50.8, up from 46.4 the month before and back above the 50-threshold that separates growth from contraction for the first time in five months. Reopened airspace and resumption of flights drove higher output and new orders, and helped end a four-month contraction in jobs. “A period of relative calm in late-June and early-July and a resumption of air travel led to a return to growth,” said Andrew Harker, economics director at S&P Global Market Intelligence.

The UAE staged the sharpest improvement in business conditions in four months, climbing to 52.7 in July from June’s five-year low of 50.8. July’s reading is its highest since March, and comes as new orders accelerated at the fastest pace since February with customer confidence gradually making a return.

Saudi Arabia stayed the course despite the macro backdrop of 2Q. The PMI slowed slightly from 53.3 to a record 53.1 in July, marking the fourth month of expansion for the country’s non-oil private sector. The resilience was driven by firms reporting higher output, an improved orderbook, and an accelerated improvement in delivery time. This comes against a macro backdrop, with the Kingdom’s GDP contracting by 4.8% in 2Q on the back of slowed exports and rising freight costs.

Egypt and Turkey are still in contraction territory, but the slide is slowing. Egypt’s PMI improved to 46.8 from June’s 41-month low of 46.0, marking the seventh consecutive month of contraction, even as business confidence hit its highest level since June 2022 and supply chains improved for the first time since March. Turkey’s manufacturing PMI climbed to 47.7 from 47.1, a 28th consecutive month below 50, with new export orders still falling as Middle East demand dried up and firms continuing to cut headcounts as orderbooks remain sliding.

Lower oil prices in July drove the decelerated contraction for both the two net energy importers, easing the input cost pressures that squeezed manufacturers in prior months. This drove inflation figures down, the lowest in six months for Egypt and in three months for Turkey, ultimately giving manufacturers the weakest input costs inflation in the year.